Monday, 23 August 2010

The Middle Man Rules: No market ecomomy for tobacco producers

A tobacco producers' spokeswoman today pointed a finger into one of the nicotine industry's dirty secrets in Bulgaria: total free market deficit and favouritisation of middlemen by the state. Prices [of tobacco] have been proclaimed 'market-free' but in reality all export remains controlled, Nina Lambova revealed on the BNR's Horizon channel. Lambova, who is the executive director of the National Association of Tobacco Producers, explained that any foreign trader or investor willing to step in Bulgaria is forced to do so through a company specially lincensed by the state.
Lambova correctly detected the core of the problem: that in spite of EU membership and formal commitment to the free market ideology Bulgarian state has imposed total control on the tobacco market, which effectively prevents producers from freely negotiating the prices of their goods. Cutting the state aid in this circumstances would doom the producers, she rightly suggested.
But Lambova then fell short of naming the most obvious consequence from the existing situation: the thick profit margins of a narrow clique of licensed but yet private middlemen. Following an old cliché from the early years of economic transition, the lincensed trade companies are conveniently placed 'at the entrance and at the exit' of what seems like one of the last icebergs of state-supported economy in Bulgaria.
Indeed, under EU pressure the ice is cracking under state support for the traditionally underdeveloped tobacco production industry which relies on the cheap manual labour of mostly ethnic minority workforce. But while bowing to EU's free market rules with regard to production, the Bulgarian member-state has conveniently forgotten to liberate the trade - so the profits of the licensed tradesmen remain guaranteed. In addition, unlike its eagerness to comply with state-aid restrictions, Sofia has made a surprising U-turn on another EU trend - that of banning tobacco smoke. In a last minute strictly controlled vote the ruling majority abolished a total smoking ban just before it came into effect on June 1. In addition to their unlimited power over export prices, this move left tobacco tradesmen with untouched profits on the home market as well.
Who are the people whose financial well being is dearer to the Bulgarian state than the health of its citizens and the prosperity of entire regions? One of them, the former chairman of the Tobacco Products Trade Association Emil Dimitrov is a member of Parliament with Gerb - the ruling party lead by prime minister Boyko Borissov. Although Dimitrov has formally declared that he had quit his tobacco business affiliations for the duration of his mandate in Parliament, he was the primary engine of smoking ban's cancelation. It is clear however that Dimitrov alone could not have been capable of mobilizing and enforcing the unified vote within Gerb and its minor political partner Ataka. An operation of such scale should have been in the hands of the parties' leaders.

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